Trump’s Tariffs Loom as Deficit Increases

The U.S. trade deficit grew in January to its highest level in nearly a decade, despite President Trump’s aim to shrink it.

The deficit rose from $53.9 billion to $56.6 billion with a 5 percent increase from December. The deficit continued to rise to its largest amount since October of 2008, when it was at $60.2 billion.

Exports went down by $2.7 billion to $200.9 billion, a 1.3 percent decrease. Meanwhile imports stayed put at $257.6 billion, a small decrease of 0.1 percent. While the strength of the dollar stayed constant, U.S. manufacturing continues to lag behind.

The release of the trade report comes a day after Trump’s top economic advisor Gary Cohn announced his resignation. While Cohn did not cite one specific reason for leaving, his resignation comes on the heels of Trump’s proposal of steel and aluminum tariffs, which Cohn was widely reported to oppose.

Some economists think the tariffs are merely a ploy to create leverage against other countries. “Tariffs and trade banter are used as a negotiating tactic,” said Dr. Michael Englund, chief economist for Action Economics. “We’ve had tariffs in the past. They’re impact is small, and probably won’t change the forecast.”

A decrease in imports of capital and consumer goods was largely compensated for by an increase in oil imports of $2.3 billion. The bump in the price of petroleum was partially due to the closure of the Forties pipeline in the North Sea. The pipeline, which is owned by Ineos, had to close down for several weeks in mid-December to avoid further oil spillage.

China has been the main focus for Trump in his talks about tariffs and unfair trade deals. The deficit with China increased by $1.5 billion to $35.5 billion in January. Many economists doubt that Trump’s tariffs will have the desired effect of lowering the deficit with China and other countries.

Exports of goods decreased by $3.0 billion to $134.2 billion, with a majority stemming from a $2.6 billion decrease in capital goods. $1.8 billion of that decrease was in civilian aircraft. Companies like Boeing who buy steel to make their products could see more instability ahead, as a result of the expected increase in price from the tariff.

Stan Shipley, an economist at Evercore ISI, is skeptical that the proposed tariffs will be viable for lowering trade deficits.

“Steel and aluminum will be better off, no question,” Shipley said. “But there’s not that many jobs to begin with in those industries. If you’re a car producer, or something that uses steel or aluminum, you’re now at a disadvantage. What you want to do is make local manufacturing more competitive, through infrastructure, tax rates, and the workforce. Tariffs are the wrong way to do it.”

The New York Times reports that there are already plans to reopen blast furnaces in the U.S. in anticipation of the increased domestic demand for steel. The reverberating effects of the proposed tariffs will continue to take shape over the coming months.